Dodd-Frank Act Covers Land Contracts – January 10, 2014

Dodd-Frank Act Covers Land Contracts – January 10, 2014

The Consumer Financial Protection Bureau (CFPB) final Loan Originator Compensation rule applies to seller financers. The CFPB released the rule on January 20, 2013, as part of its implementation of amendments to the Truth in Lending Act (TILA) made by the Dodd-Frank Wall Street Reform and Consumer Protection Act enacted on July 21, 2010. The final rule takes effect on January 10, 2014.

TILA, as amended, and CFPB’s implementing regulations exclude from the definition of loan originator some sellers who provide seller financing.  CFPB has provided some flexibility in the new final rule by excluding from the definition of loan originator two categories of seller financing: those that sell 3 or fewer properties in any 12-month period and those that sell only one in any 12-month period, and in both cases meet other criteria.

http://files.consumerfinance.gov/f/201301_cfpb_final-rule_loan-originator-compensation-amendments.pdf

14 thoughts on “Dodd-Frank Act Covers Land Contracts – January 10, 2014

  1. I was at a meeting January with Al Keller. In regards to new regulations concerning land contracts I didn’t grasp on that it entailed. But we are purchasing land with a land contract. We will be building on each lot as we receive contracts. We were thinking of building the structure and have the clients pay off at closing or pay us a draw in between then payoff rest at closing.

    Would there be any issue with this type of approach with the new laws?

    Jen Kuehn/ Keller & assoc.

    1. Hi Jennifer: Thank you for the comment, and for attending the January presentation. Due to time constraints, the Question & Answer portion of the presentation was omitted. If I am reading your question correctly, it appears that you are buying vacant land from a developer. Is that correct, or are you the party selling property via land contract (seller financing)? Once I am clear on your question, I should be able to provide a better response. Thanks! Allan

  2. Has there been any official statement on whether land contracts / contracts for deed are subject to Dodd Frank regulations?

    1. Hi Nate: Thank you for the comment. The answer is yes. As I mentioned in the post, the Consumer Financial Protection Bureau (CFPB) final Loan Originator Compensation rule applies to seller financers. I also included a link to the final rule. If you’d like to discuss this further, please feel free to call me at 248-335-6166, or you may wish to attend an upcoming presentation. Thanks again! Allan

  3. If I have an LLC, licensed as a real estate broker, how many land contracts can I sell within a given year? as an individual, how many? do I need to be licensed as a mortgage broker in order to do more?

    1. Hi Bryan: You have asked very good questions, and I would like to invite you and every real estate licensee in Michigan to attend a 2 hour continuing education program that I will be presenting on the topic. Here is what the North Oakland County Board of REALTORS has to say: “Hardcore Regulations: Uncovering Dodd-Frank”-Attend Allan Daniels’ class on Wednesday, April 30 (9-11 a.m.) and earn two hours of continuing education, which represents your mandated legal hours, required each year. Allan will assist you in understanding the Dodd-Frank Act which took effect January, 2014, and affects seller-financing and much more. As a real estate professional, the class may be the most important training you will experience in your career. NOCBOR members are offered the class free of charge. Registration can be made by calling 248-674-4080 or e-mail info@nocbor.com

  4. We were looking to purchase a home thru a land contract. Today I have been told that this won’t be possible due to the fact that the seller has a current mortgage on the home. The Dodd-Frank Act does not allow the is happen now in Michigan. Is this true?

    1. Hi Kathleen: The “Due on Sale” clause of the sellers mortgage is unrelated to the Dodd-Frank Act. If the seller has a mortgage with a due on sale clause, the seller may be unable to sell the home via a land contract since the mortgage holder has the right to declare the mortgage “due and payable” when the property is sold. Please let me know if you have any other questions. Thanks! Allan

  5. I am an investor and have 40 properties. This is not my full time job. I do sell properties on contract but not more then 3 properties in a year. Would it still apply to me? Do you only do you classes in Michigan? Any other states?

    1. Hi Mike: The regulations apply to everyone. My 2 hour course are approved for real estate continuing education in Michigan. i would be happy to do an individual consultation. Please feel free to contact me directly if you would like to discuss this. Thanks! ~ Allan

  6. Hi I’m areal estate agent, I have a listing, we had a buyer who’s willing to do land contract, but my seller is-asking for 3 years contract only, is there any laws that prevent that? or says that the land contract has to be for 5 years at leasat?

    1. Hi Rana: Thank you for your comment. The seller needs legal advice from a competent attorney. You, as a real estate agent, cannot provide legal advice unless you are also licensed as an attorney with a focus on the area of law in question. An attribute of many agents, and sales professionals any field, is that of wanting to be helpful to a client or customer. One must consider, however, that helping out in areas in which one is not an expert, can actually be a disservice to one’s client or customer. For this reason, Michigan Realtors® has developed language in the Seller Financing Addendum Exclusive Listing Contract (Form Q) that explains the following: It is acknowledged by the parties hereto that the Seller may provide financing or extend credit to a buyer through the use of a land contract or other arrangement by which the Seller extends credit which is secured by a mortgage or an equivalent consensual security interest on a residential dwelling or on land on which the buyer intends to construct a residential dwelling (“Seller Financing”).
      Seller understands that neither Brokerage Firm nor any person affiliated with Brokerage Firm can provide legal advice or financial advice with regard to Seller Financing. The process and terms of Seller Financing may be subject to both federal and state regulation, including but not limited to the Michigan Mortgage Loan Originator Licensing Act, the Michigan Mortgage Brokers, Lenders, and Servicers Licensing Act, the Federal Secure and Fair Enforcement for Mortgage Licensing Act, the federal Ability-to-Repay and Qualified Mortgage Standards Under the Truth in Lending Act (“Regulation Z”). This list of potentially applicable federal and state law(s) and regulations is not exhaustive. Seller is advised to consult with an attorney as to any transaction involving Seller Financing. There can be substantial penalties and adverse consequences if a Seller fails to comply with applicable federal and state laws and regulations when providing Seller Financing.
      Thanks again for your comment! ~ Allan

  7. My name is Michele Blair and I am a Broker from Flushing Michigan. I just found out about this NEW law and am in the process of negotiating a land contract for my Seller. I recommended they have Attorneys look at offer and neither attornies mentioned the law. Do I play stupid when I know ?

    1. Hi Michelle: If you a member of the association, you may wish to contact the MAR Legal Hotline. Additionally, you may wish to provide your seller with Form Q–Seller Financing Addendum. It is available in the members only section of the website. I hope it works out! Thanks! Allan

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